As anyone who has ever sought a loan or a line of credit knows (hereinafter a “loan seeker”), it can be a challenge to find a lender who is willing to offer a loan or line of credit at a reasonable interest rate and on reasonable terms. Although the verity of this statement is clear for those with poor credit histories and little collateral, it is also true for those with excellent credit histories and substantial assets. For example, although many lenders might endeavor to provide some types of loans and lines of credit, few lenders provide more than a small subset of all of the types of loans and lines of credit offered by all of the lenders. One lender might offer only 30-year adjustable-rate home mortgage loans for under $300,000 while another only offers 15-year fixed-rate home mortgage loans for over $70,000. Therefore, even a creditworthy loan seeker might waste his or her time approaching lenders who do not offer the type of loan or line of credit he or she desires.
Furthermore, even if a creditworthy loan seeker finds a lender who does offer the type of loan or line of credit he or she desires, the loan seeker is unlikely to know if that lender is offering a competitive interest rate and competitive terms. In general, there are three ways that a loan seeker can remedy this.
First, the loan seeker can contact (e.g., in person, on the telephone, etc.) numerous lenders and inquire into their interest rates and terms for a particular type of loan. In fact, many people do precisely this when seeking a home mortgage loan because minor differences in interest rates and terms are well-known to result in substantial differences in monthly payments. Although it clearly pays to shop around, even the most stalwart are unlikely to contact more than a dozen lenders because of the time and effort involved.
Second, the loan seeker can consult newspapers and other periodicals that publish interest rates and terms for a variety of lenders. Such listing are, however, unlikely to be comprehensive and are likely to be out-of-date, particularly in times when interest rates are changing rapidly. One factor that accelerates the perishability of rates in newspapers and periodicals concerns lenders who discover that their published rates and terms are not competitive. Typically, those lenders immediately change their rates and terms, but because of the latency in publishing and disseminating newspapers and periodicals those changes are not immediately well-known. Although a loan seeker can consult published resources that do not have a printing latency (e.g., the Internet sites of lenders or mortgage brokers, etc.), those rates are often misleading because they apply only to the most creditworthy.
Third, the loan seeker can contact an “independent” loan broker who represents a plurality of lenders. The independent loan broker is not, however, obligated or motivated to provide the loan seeker with the least expensive loan or line of credit at the best terms, but rather the loan or line of credit that garners the loan broker the largest commission for the least cost. In other words, because the loan broker does not have a fiduciary duty to the loan seeker, and, therefore is not legally (or financially) motivated to find the loan seeker the least expensive loan or line of credit at the best terms, the loan seeker might be disadvantaged by using a loan broker rather than using a lender directly.
Regardless, when a loan seeker has satisfied himself or herself that he or she has found a lender who offers the desired type of loan or line of credit at a competitive interest rate and at reasonable terms, the loan seeker must thereafter expend an indeterminate amount of time and energy to learn if he or she qualifies for a loan or line of credit from that lender. And although a loan seeker might satisfy himself or herself that he or she has located a lender with the best interest rate and terms, that does not mean that he or she has, in fact, done so. There could be other lenders, unknown to the loan seeker, who offer better rates and terms.
Furthermore, the lender might decide that the loan seeker does not qualify for the desired loan or line of credit, or that the loan seeker, because of credit problems or little collateral, does not qualify for the best rates and terms, which are what brought the loan seeker to that lender in the first place. In either case, the loan seeker might have wasted his or her time in approaching the lender or might not receive the interest rate and terms that were anticipated.
The end result is that, in today's marketplace, it can be difficult for those seeking a loan or a line of credit to find a lender that is willing to offer the type of loan or line of credit that the loan seeker desires at a competitive interest rate and terms.
Perhaps surprisingly, it is even more difficult for each lender to find a satisfactory number of loan seekers who are interested in and qualify for the particular lender's loans and lines of credit. In fact, some lenders spend tens of millions of dollars per year on advertising to entice potential borrowers to their door only to learn that well more than half do not qualify for any type of loan or line of credit under the lender's lending criteria. This is extremely inefficient and problematic for lenders because the money spent on advertising, 800-numbers, application takers and reviewers must be recouped from the earnings of those financial products that are, in fact, provided to loan seekers who do qualify and ultimately close a loan or line of credit. In other words, a portion of the money (e.g., application fees, points, interest, etc.) paid by those loan seekers who do close loans and lines of credit goes to pay for the lender's costs in advertising and culling out the uncreditworthy. Therefore, a lender could offer creditworthy loan seekers lower fees and interest rates if the lender could forego advertising and had only creditworthy loan seekers knocking on its door.
In summary, not only do loan seekers have difficulty locating a lender that offers the type of loan or line of credit sought at competitive rates and terms, but it is also difficult for lenders to find large numbers of loan seekers who are interested in, and qualify for, the lender's offerings, without having to spend time and money on advertising and culling out the unqualified.
Therefore, the need exists for a mechanism that enables a loan seeker to quickly and easily find a lender that offers the type of loan or line of credit that he or she desires at the best possible interest rate and terms and that also provides lenders with large numbers of creditworthy loan seekers at a reasonable cost.